Salary exchange  

Salary exchange is a tax efficient way to buy benefits or increase pension contributions with very little or no cost to the employee and employer. 
 
With employer minimum pension contributions increasing from 1% to 2% and then up to 3%, in April 2019, by using salary exchange and proper planning you can help fund those mandatory increases in your pension costs. 
 
Salary exchange is an agreement between employer and employee to exchange part of their gross salary for a tax free benefit, so employees will pay no tax and National Insurance Contributions (NIC) on that exchanged amount and in return you are able to give a non cash benefit such as increased pension contributions. 
 
Your benefit is you pay no (NIC) on the part of salary exchanged, which you can use the savings to help pay the mandatory increases in employer pension contributions or add other employee benefits such as Death In Service group life insurance. 
Salary exchange Salary sacrifice
Salary exchange and salary sacrifice
There are many different ways to set up salary exchange depending on what the employer and employee are trying to achieve, whether it’s pension contributions or extra employee benefits, but the key to employee take up is communicating the benefits well. Initially an employees thought of giving up a slice of their contractual salary doesn’t sound that good, but if the salary exchange scheme is set up correctly the take home pay could actually be higher or the same with additional benefits also gained. 
Salary exchange savings
The figures assume the employee earns a gross salary of £20,000 and both the employee and employer pay 5% of gross salary to a personal pension plan. 
 
Note: the employers cost includes gross salary, pension contributions and NIC. 

How we can help  

Review any current pension and benefits salary exchange schemes 
Advise on an appropriate salary exchange scheme and implement it 
Communicate salary exchange benefits to employees through presentations 
Help deal with accountants, HR and HMRC through set up 
Review schemes to keep up to date with legislation and recommend any changes 
Provide pension & benefit advice on a 1 to 1 basis for all your workers if needed 
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